Once again, American Science & Engineering (NASDAQ:ASEI) walloped the Street's earnings estimates. Yesterday's impressive set of Q3 numbers included the following:

  • Revenue grew 53%, to $65.3 million.
  • Gross margin topped 44%, far exceeding what X-ray rivals L-3 (NYSE:LLL) and OSI Systems (NASDAQ:OSIS) earn. It even trumped General Electric (NYSE:GE), which competes with AS&E in the bomb-detection space.
  • Profits leapt 163%, to $1.13 per share.

As if that weren't enough, free cash flow swelled even faster than the "net earnings" reported under GAAP. Year to date, cash flows are up 72% to $18.2 million, meaning that fully 90% of AS&E's accounting profits are now backed up by cold, hard cash profit. Nice -- but not unexpected. After all, Q3 accounts receivable rose only 16%, and inventories 14% -- both far slower than sales growth. As a result, AS&E is tying up very little cash, and it remains able to convert sales to free cash flows with alacrity.

And yet ...
With all this good news to boast about, a Fool has to wonder: Why is the stock down 1% today? Is it the same general market malaise that's dragged defense heavyweights like General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC) and Lockheed Martin (NYSE:LMT) down more than 4%? Or is this something more serious?

I think it is -- though perhaps no cause for panic just yet. CEO Anthony Fabiano tells us all the time how his company's earnings are "lumpy," and it looks to me like we're headed for a few more bumps on AS&E's growth trail. The company booked only $21.5 million in new business in Q3, barely one-third of what went out the door in fulfilled orders booked as revenue. Meanwhile, backlog stands 22% higher than it did at this time last year. In short, AS&E is finishing up its existing work faster than it's bringing in new business.

Backlog's key
Although the company has more than $153 million in backlogged work today, that's good for only about three quarters' worth of future toil. To maintain its momentum, management needs to start signing new orders.

Wall Street, all too familiar with AS&E's history of lumpiness, greatly doubts that the company will maintain last quarter's triple-digit growth pace. To the contrary, analysts predict only 13% annual long-term profits growth. With the stock trading today for a price-to-free cash flow ratio of about 23, that doesn't leave us a real big margin of safety.

And that, Fools, is why the stock's stuck in neutral today.

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Fool contributor Rich Smith owns shares of AS&E, a Motley Fool Rule Breakers recommendation.. The Motley Fool's disclosure policy sees all, shows all.